The objective of this dissertation research is to examine the interaction between regulatory accounting policy and its effects on the organization of the health care delivery system. To achieve this objective, the research will analyze the Medicare-Medicaid regulations which specify how hospitals are reimbursed for capital costs after mergers and acquisitions and determine whether these regulations influenced the growth of multi-institution systems. In Phase I of the research plan, a theoretical model will be developed to predict how Medicare-Medicaid regulations for accounting for capital costs after mergers or acquisitions may have influenced hospitals' decisions to form multi-hospital systems. In Phase II, empirical analyses will be performed to 1) determine the magnitude of any increase in cash payments for capital costs that hospitals received when they merged or acquired other facilities, and 2) to determine whether there is an empirical association between methods by which capital costs are reimbursed and the rate of mergers and acquisitions in the industry. Phase I, the conceptual analysis, requires: a) a detailed technical review of relevant Medicare-Medicaid regulations, and b) an analysis of regulatory incentives in the context of economic theory. Phase II, the empirical analysis, has two components. 1) The magnitude of increases in Medicare payments after mergers and acquisitions will be measured by comparing capital costs reported on Medicare Cost Reports for a sample of 100 hospitals. 2) The association between capital cost reimbursement methods and the growth of multi-institution systems will be tested using data from the nursing home industry. A match pair design is used to compare the rate of mergers and acquisitions between states which use different methods to reimburse capital costs. The research contributes to understanding now the choice of accounting methods used to measure capital costs can 1) affect the allocation of Medicare-Medicaid funds among various types of providers, 2) influence hospital's capital formation decisions, and 3) explain the variation in capital costs among different providers.